One Wild Ride

Money managers shift strategies when the market runs away

Do investment strategies that came into play when the bubble burst two years ago and “the new normal” of Wall Street emerged still work? Or is it like playing the ponies and seeing who is running today?

Former M*A*S*H star Wayne Rogers built a second career as an investor, investment strategist, and adviser. “There is no difference [between] managing money today than at any other time,” says the Fox News commentator and founder of Wayne M. Rogers & Co. “The economic climate changes constantly, and one adjusts to that on a consistent basis. You look for consistent earnings, strong balance sheets, and companies that have proven management.”

In today’s world, survival requires asset allocation. “When the economic winds change, I look at allocating,” Rogers says. “For example, if inflation is imminent, you vary investments to favor companies that would do better in that environment.” He looks at reducing bond allocation and favoring commodities, such as precious metals and oil, to take up the slack. “There is nothing exotic about managing a portfolio that is designed to preserve capital. I say that as opposed to managing to make money, as a trader might do.”

Kurt Brouwer, chairman of Brouwer Janachowski, likes investments to be “boring.” Historically, the Tiburon-based firm did not make rapid changes, trying to time the market. It has made more changes in its investment strategy in the last few years than the last 23 years.

When the market falls off, Brouwer’s fund managers rebalance portfolios to be even more diversified. They favor no-load mutual and exchange-traded funds. If a client holds a 50-50 split between stocks and bonds and the market falls, they quickly rebalance. “We’ve been getting good returns in a nontraditional way,” says Brouwer, who now buys funds that invest in commodities or uses a fund that goes long and short depending on where asset classes are headed. “This approach to alternative investments is more like a hedge-fund approach with built-in safeguards,” he says.

“The most significant change for us is how we spend more time researching market fundamentals that go beyond traditional research nuts and bolts from a financial perspective,” Brouwer continues, referring to the market impact of government actions like the Federal Reserve pumping money into the economy, increasing deficit spending. These are not subject to the normal financial industry analytical terms. “When the stock market climbs these days, it’s based on a wall of worry, because the basics are so negative,” Brouwer explains.

“I truly believe that I have now seen it all and don’t get excited when the market is up or down,” says Tom Burkhart, founder and CEO of San Francisco-based Savant Group. “By the first quarter of 2009, all bets were off. We met with every one of our 200 clients and looked at what we could rebalance in their portfolio without a major loss.”

Burkhart also turned to alternative investments like hedge funds and master limited partnerships. “They have held up quite well for us,” he notes. His analysts and fund managers spend a collective 4,000 hours annually on research. So much for the days when Malcolm Forbes supposedly threw darts at a wall covered with The Wall Street Journal’s stock pages to pick winners.

“Taking a long-term view in a world that seems to provide mountains of new information every millisecond can be challenging for many people,” she says. “As a former geophysicist, my perspective on ‘time horizon’ is often a little different from most advisers. That said, I endeavor to filter out the noise to stay on track with the plan we created to meet the goals and needs of each client.”

Gary Hall, a senior private banker at Wells Fargo Private Bank in Palm Desert, views today’s money-management environment as “all about multiple-class assets, including bonds, stocks, and alternatives that are all complementary.” Those alternatives include commodities, real estate investment trusts, and hedge funds. “We’ve changed in this new world by a strong focus on global investments,” Hall observes. “We now consider emerging markets more strongly than before and income-producing bonds from out-side of the U.S. We’re even going long on Australian bonds.”

According to Matt Tuttle of Tuttle Wealth Management in White Plains, N.Y., the best advice any money manager can offer when the market breaks down is to get out “before the bad gets really bad.”

Yet no matter how many hours of sophisticated research and due diligence a mone-management firm conducts, there are no guarantees the market won’t turn on a dime again.